In times of trouble for the stock market, there's an old cliche that "cash is king." But some people want a better haven for their hard-earned money -- and turn to gold.
For thousands of years, the most popular investment was gold — the prettiest metal you could bend, re-form, bury and reuse endlessly. But these days, gold’s strength as a store of value isn't what it used to be.
Still, if nothing but gold will do, you can certainly still invest in the metal. Here are four popular ways to do it.
1. Buy gold bullion or coins
The easiest way to put your money in gold is to buy gold bars, coins or jewelry.
Although this method might seem easy, there’s a higher risk of losing your investment. To make a profit off the precious metal, you need to have a reasonable expectation that your gold can be sold for more than you paid for it.
But gold prices are notoriously difficult to predict. In the 1990s, gold barely hit $300 on a good day. Then, as financial and political crises loomed in the mid-2000s, people did what they always do and started buying up gold.
Its value more than doubled from $800 an ounce in 2009 to $1,900 in 2011. But by 2013, the bubble had burst and gold was down to $1,300. Five years later, it’s worth about $1,200.
2. Invest in gold stocks
You can invest in gold without ever touching a flake of it by purchasing shares of gold mining companies on the stock market.
The advantage is that if the price of gold suddenly plummets, you may not lose your shirt because the mining company could decide to focus on another metal.
The disadvantage of owning mining stocks is that they can decline with the rest of the market, even when the value of gold is steady.
And unlike a technology company, a mining firm runs the risk of being involved in a mining disaster. Lives lost, environmental damage and bad press can wreak havoc on a mining company’s stock price.
3. Put money into gold ETFs
Investors might buy into gold exchange-traded funds (ETFs) to avoid the uncertainty that comes with investing in a particular company.
Put simply, these funds are pools of money from investors that are poured into a variety of gold and mining companies. ETFs are traded like stocks; some of the most popular gold ETFs are GLD, GDX, and GDXJ.
It’s important to note that there's a measure of uncertainty when investing in ETFs. Although these funds are heavily diversified to reduce risk, they are still subject to the fluctuations of the stock market.
If the market crashes, the value of your investment could drop even if the value of gold doesn’t change.
4. Buy gold futures
Gold futures are very complicated. They're contracts in which you agree to buy a set amount of gold at a specific price sometime in the future. Traders can strategically buy and sell futures contracts to profit from the changing price of gold.
The contracts typically require a minimum purchase of 100 ounces of gold. Many investors complain that the details of futures are confusing and that it's difficult to finalize them.
Any gold investment is tricky because it’s difficult to determine gold's inherent value. Unlike a company, gold doesn’t make any money. The only real value associated with gold is how much it costs to mine — and what investors think it's worth, based on whether there's demand for it.
If you buy gold, make sure it has a chance to make you money. The safest way to invest in gold is if it's a small part of a diversified set of investments that pay dividends. Investing in gold mining could be another safer bet than buying gold bars outright.
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